Mr. Alok is holding a saving account in SBI. He has changed his field recently and has joined Tourism industry. Now his company want to send him on abroad trips. For his personal expenses he wants to purchase foreign currency. He has approached SBI Branch where he holds his account. But SBI is saying that he cannot get foreign currency in that branch & he has to go to another branch. Alok is arguing with SBI that since core banking system is followed why can’t any SBI branch issue foreign currency to him.
Also, Alok thinks that looking at current slowdown situation in global markets he should buy maximum USD at present and sell it when rates go up, he also wishes to do currency trading by sitting in India.
Alok’s company needs to do frequent payments in USD. They want to hedge their positions by entering into derivative contracts. In past they have faced following issues
When they charge any money from customers USD is stable, but when they want to make payment to outside suppliers USD moves up.
If a particular trip is cancelled money needs to be returned to customers, that time also USD movement troubles the company since some part of tour fees are taken in Rupees and some part in USD.
You are required to answer following questions based on above background of situation
1.Is Alok right in arguing with SBI? Is SBI correct in denying Alok? If yes where what should Alok do?
Is Alok right in his opinion that in near future USD will go up against rupee? Which factors will be the reason behind it if it goes up or comes down?
3.If Alok’s company want to get out the troubles of forex movements what things they should do? Can all risks in forex market be neutralized?
Answers
Answer:
Mr. Alok is holding a saving account in SBI. He has changed his field recently and has joined Tourism industry. Now his company want to send him on abroad trips. For his personal expenses he wants to purchase foreign currency. He has approached SBI Branch where he holds his account. But SBI is saying that he cannot get foreign currency in that branch & he has to go to another branch. Alok is arguing with SBI that since core banking system is followed why can’t any SBI branch issue foreign currency to him.
Also, Alok thinks that looking at current slowdown situation in global markets he should buy maximum USD at present and sell it when rates go up, he also wishes to do currency trading by sitting in India.
Alok’s company needs to do frequent payments in USD. They want to hedge their positions by entering into derivative contracts. In past they have faced following issues
When they charge any money from customers USD is stable, but when they want to make payment to outside suppliers USD moves up.
If a particular trip is cancelled money needs to be returned to customers, that time also USD movement troubles the company since some part of tour fees are taken in Rupees and some part in USD.
You are required to answer following questions based on above background of situation
1.Is Alok right in arguing with SBI? Is SBI correct in denying Alok? If yes where what should Alok do?
Is Alok right in his opinion that in near future USD will go up against rupee? Which factors will be the reason behind it if it goes up or comes down?
3.If Alok’s company want to get out the troubles of forex movements what things they should do? Can all risks in forex market be neutralized?
Explanation:
yes
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